gcc retail industry report 2010

GCC Retail Industry May 6, 2010

P a g e | 2GCC Retail Industry

TABLE OF CONTENTS

1 EXECUTIVE SUMMARY ..............................................................................................................................4 1.1 Scope of the report .......................................................................................................................................................4 1.2 Investment Rationale ....................................................................................................................................................4 1.3 Investment Risk.............................................................................................................................................................4

2 GCC RETAIL INDUSTRY OUTLOOK ..........................................................................................................5 2.1 Methodology..................................................................................................................................................................5 2.2 Demand side estimate ..................................................................................................................................................5 2.3 Supply side estimate ....................................................................................................................................................6

3 FINANCIALS AND VALUATION..................................................................................................................8 3.1 Financial performance..................................................................................................................................................8 3.2 Valuation ......................................................................................................................................................................10 3.3 Stock liquidity..............................................................................................................................................................11 3.4 GCC retail sector picks...............................................................................................................................................13 3.5 Corporate governance................................................................................................................................................15

4 THE GLOBAL RETAIL INDUSTRY............................................................................................................17

5 THE GCC RETAIL INDUSTRY...................................................................................................................19 5.1 Overview ......................................................................................................................................................................19 5.2 Sector on a recovery track.........................................................................................................................................19 5.3 Market characteristics ................................................................................................................................................20 5.4 Growth drivers.............................................................................................................................................................21 5.5 Industry trends ............................................................................................................................................................23 5.6 Challenges ...................................................................................................................................................................25 5.7 Way forward.................................................................................................................................................................26

COUNTRY PROFILES ........................................................................................................................................27

COMPANY PROFILES........................................................................................................................................36

APPENDIX: MAJOR RETAILERS IN THE GCC REGION (2009) ......................................................................45


For any query regarding this report, please contact:

Sameena Ahmad

Managing Director

[email protected]

+971 (0) 4 363 4345

Mahboob Murshed

Managing Director

[email protected]

+971 (0) 4 363 4305

DISCLAIMER:

Alpen Capital (ME) Limited (‘Alpen’), a firm regulated by the Dubai Financial Services Authority, produced this material. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Alpen may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities, perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Alpen may, to the extent permitted by applicable UAE law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Alpen from sources believed to be reliable, but Alpen has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Alpen accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgment. Alpen shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Alpen for, or sent by Alpen to, any person, and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice. Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment what so ever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the UAE where its distribution may be restricted by law. By accepting this report, you agree to be bound by the foregoing limitations.


1 Executive Summary

1.1 Scope of the report

This report caters to investors looking for opportunities in

the GCC retail sector. The focus of the report is on GCC

retail players and factors that drive revenue and earnings

for the industry, as well as opportunities and challenges.

The report also covers valuations, stock liquidity,

transparency and governance for the major listed GCC

retail companies. Our retail sector model estimates

addition in the retail space as well as demand for retail

products over the next three years (2010-12).

1.2 Investment Rationale

The retail sector is leading from the front in the GCC’s

ambition to move away from oil dependency towards a

diversified economy. The region is enhancing its footprint

in the global retail map buoyed by factors such as healthy

population growth, rising per capita income, growing

middle class, improving service sector and burgeoning

travel and tourism sectors. Moreover, the modern shopping

malls anchoring state-of-the-art hypermarkets, highly

developed free trade zones, various shopping

festivals/events and relaxed tax provision for individuals

provide further growth impetus to the sector.

Currently, retail projects of around six mn sq m of Gross

Leasable Area (GLA) are underway, which will constitute

the region’s retail space supply by 2012. This reflects

optimism amongst mall developers and retailers in general.

Race for more retail space in the GCC is not restricted to

local participants; many foreign retailers have initiated their

retail operation in the region to leverage on its substantial

growth prospects.

The rising GLA in the retail space is expected to be

matched by demand growth in the sector. Alpen Capital

estimates GCC retail demand growth at a CAGR of 9.5%

in 2010-12. For 2010, we project the industry growth of

around 8.3%. Growing population (CAGR of 2.9% until

2012) and rising per capital expenditure (CAGR of 5.6%

until 2012) are key underlying reasons for this demand

growth. Moreover, we expect robust growth in retail

demand from travellers in transit (airport retail) and

tourists. Pharmacy and electronic sales, although

minuscule in terms of contribution to the total retail scale,

are also posting signs of healthy progression.

Retailers with focus on non-discretionary goods will

continue to outperform in the short term while those

promoting discretionary products, large ticket items in

particular, may face challenging market conditions for a

while. The view is further supported by the 1Q 2010

financials posted by GCC retailers wherein non-

discretionary retailers posted healthy top-line progression

while discretionary retailers presented subdued

performance. However, over a medium-to-long term

horizon, Alpen Capital foresees investment merit also in

more cyclical discretionary goods segments.

Along with significant growth, there has been a qualitative

shift in retail consumer behaviour in the GCC. The key

trends developing in the region are – rising acceptability of

modern retail format, increased preference for international

brands, growing prominence of online retailing and

enhancing appreciation for innovative ideas and offerings.

1.3 Investment Risk

The plethora of opportunities is punctuated by a few

challenges that the industry is currently facing. Considering

the potential in the GCC region, many international

retailers have expanded their presence within the GCC to

sustain their global business growth. As a result,

competition has significantly heightened for the local

industry participants over the past couple of years. In

addition, there is an ongoing threat from relatively low

consumer finance availability in the region – a high credit

card interest rate compared to the global average due to

higher default risk and lack of credit bureau data.


2 GCC Retail Industry Outlook

The rise in population, urbanization, middle class (with

increasingly higher per capita income), inflow of tourists

and number of passengers in transit continue to provide

congenial conditions for retail to develop in the GCC

countries. Alpen Capital expects GLA addition of

approximately six mn sq m in the GCC retail space in

2010-12. Looking at the region as a whole, we see

demand growing at a sufficient pace to absorb the healthy

pipeline of new space. That said, some cities, Dubai in

particular, will depend on continued strong growth in

tourism to absorb the incremental retail space.

Alpen Capital expects the non-discretionary retail segment

to continue to register healthy growth momentum in 2010

while the discretionary segment is likely to remain

subdued. We expect revival in demand generated from

tourists and passengers in transit to provide a further boost

to retail sales in 2010. Further, pharmaceuticals and online

retail presents latent growth potential.

2.1 Methodology

As detailed in our initiation report (21 April 2009) on the

retail sector, we have formulated our opinion on the GCC

retail demand outlook based on both supply- and demand-

side factors. Accordingly, growth projected in Alpen’s GCC

retail sector model is premised on the following two

approaches:

Demand-side approach: Forward growth estimate is

based on forecasts of population, tourist arrivals and

transits, inflation and consumer spending. All

macroeconomic forecasts are sourced from independent

sources such as the International Monetary Fund (IMF)

and the Economic Intelligence Unit (EIU).

Supply-side approach: Forward estimates of retail

market size is based on the current and planned retail

space – the comprehensive retail project pipeline has

been examined to gauge total Gross Leasable Area

(GLA) expected to be added over next three years. This,

when added with logical assumptions (under two

scenarios: moderate and high growth) for delay in

completion and take-up of new space

(occupancy/absorption rate) gave us a range for the

GCC retail market size over the next few years.

2.2 Demand side estimate

Assumptions

Economic Intelligence Unit (EIU) estimates for population

and per capita private consumption (April 2010).

Total tourist spending (excluding travel and hotel

expenses) sourced from the World Travel and Tourism

Council (WTTC) database is used to understand the

impact of tourism on GCC retail sales.

Sales of duty-free products used as a proxy for airport

retail sales.

Based on the above assumptions, the GCC retail market is

projected to grow at a CAGR of about 9.5% in 2010-12

(See chart 1) as per demand-side estimates.

Non-discretionary to lead growth frontier

The non-discretionary retail segment is expected to

register stronger growth in 2010 than the discretionary

goods segment. Prevailing uncertainty in the job market

will continue to adversely impact consumer’s willingness to

increase discretionary spending particularly for high ticket

items. However, the segment will perform significantly

better than in 2009, accordingly to our analysis.

Tourist and transit sales to show revival

Chart 1: Retail sales growth estimates

8.3%9.3%

10.8%

0%

2%

4%

6%

8%

10%

12%

2010E 2011E 2012E

Retail sales growth (Y-o-Y)

Source: Alpen Capital


Alpen Capital expects revival in demand generated from

tourists and passengers in transit to provide a further boost

to retail sales in 2010. As per our estimates, short-visit

tourist retail sales is expected to register revival while sales

at duty-free shops at airports will rise significantly under

the impact of rising passenger traffic. This rate can be

higher than our estimates given the rate at which airport

infrastructure work is under progress. Annual events such

as the Dubai Shopping Festival will continue to attract

international shoppers.

This encouraging view is substantiated by a 3.3% year-on-

year rise in Dubai hotel revenue in 1Q 2010 according to a

Department for Tourism and Commerce Marketing official.

The room occupancy rate increased to 76% in 1Q 2010

from 73% a year earlier.

Continued optimism in online retailing

We reiterate our stance on growth potential in online

retailing and expect it to further enhance its footprint in the

GCC retail space.

2.3 Supply side estimate

Alpen Capital expects GLA addition of approximately six

mn sq m in the GCC retail space in 2010-12 leading to

GLA growth at CAGR of 14.5% (See chart 2). Given the

uncertain economic environment, it is difficult to determine

the timing and the success of these projects. Although the

GCC region has witnessed a huge expansion in organized

retail space over the last decade, the per capita GLA is still

very low compared to developed market, with the

exception of Dubai. Looking at the region as a whole, we

see demand growing at a sufficient pace to absorb the

healthy pipeline of new space.

The majority of the GLA addition is expected in the UAE

and Saudi Arabia. Moreover, Qatar is expected to have

major addition in GLA in 2012 (See chart 3). Higher GLA

addition for Saudi Arabia is justified given its high and

growing population base – the Saudi population constitutes

63% of the total GCC population and is expected to grow

at CAGR of 3% over the next few years. As a result, latent

demand existing in the Saudi retail market justifies

significant GLA supply growth over the next few years.

Dubai has the highest GLA per capita in the region and the

most at risk of oversupply, but also by far the strongest

tourist destination. Therefore, although GLA per capita

seems high in relation to its population, this is less of a

concern when factoring in tourist spending. Moreover, the

tourists have a relatively higher propensity to consume and

therefore post higher retail spend per capita.

Given the GLA addition, retail market sizing from the

supply-side depends on the absorption rate of additional

supply of retail space. It would be misleading to assume

that the overall occupancy rate in the retail sector is high if

new malls are fully occupied. The sector is witnessing a

growing preference for newer malls to the expense of older

store formats.

Chart 2: GLA (mn sq m) addition by year: 2010-12

2.0

1.2

2.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2010E 2011E 2012E


Chart 3: GLA addition by country : 2010-12

4% 2% 3%10% 2% 0%1%

2%19%

12%

12%

22%17% 36%

14%

57%47% 42%

0%

20%

40%

60%

80%

100%

2010E 2011E 2012E

UAE Saudi Arabia Qatar Oman Kuwait Bahrain

Source: Alpen Capital; the figures are at 100% occupancy levels


Considering the mildly uncertain economic environment

and risk of a paced absorption of new space in some

regions, Dubai for example, we have assumed the

following.

Scenario 1: Moderate Growth Scenario

Assumption: Occupancy rate of 60% for the incremental

organized retail space in the GCC region in 2010.

Thereafter, 65% occupancy rate in 2011 and 70% by 2012.

Under this scenario, the occupied GCC retail space would

grow at a CAGR of 9.9% in the years from 2010 to 2012,

in-line with our demand side estimate (see chart 4).

Scenario 2: High Growth Scenario

Assuming an occupancy rate of 80% in 2010, 85% in 2011

and 90% by 2012, the occupied GCC retail space would

grow at a CAGR of 12.6% in 2010-12, a bit faster than our

demand side estimate (see chart 4).

Chart 4: Yearly GLA growth

13.4%

7.4%

17.3%

10.1%

5.8%

14.1%

0%

4%

8%

12%

16%

20%

2010E 2011E 2012EHigh Grow th Moderate Grow th



3 Financials and Valuation

3.1 Financial performance

Defining the peer group

In this chapter, we assess the financial performance of

eight of the largest publicly listed retailers in the GCC1 (see

table at the end of the chapter). This group is referred to as

the “GCC retail companies” throughout the report. We

compare the GCC retail companies to Emerging and

Developed Market peer groups. (See chart 15 for details of

the peer groups).

Recent performance update

In line with our expectation, non-discretionary (primarily

food category) retail companies reported healthy top- and

bottom-line growth in 1Q 2010. Also, we believe our overall

industry growth forecast of 8.3% in 2010 is endorsed once

performance of both types of retailers (discretionary and

non-discretionary) is viewed in a consolidated manner.

Chart 5: Revenue performance: 1Q 2010

Company 1Q 2009

4Q 2009 1Q 2010 YoY growth

QoQ growth

Jarir Marketing 662.1 24.5 795.5 20.2% 9.8%

Fawaz Al Hokair 410.3 545.4 492.5 20.0% -9.7%

Abdullah Al Othaim Markets

721.0 762.1 797.3 10.6% 4.6%

Fitaihi Holding 36.8 34.4 36.1 -1.9% 4.9%

Savola Group 3,635.0 4,788.4 4,764.4 31.1% -0.5%

Al Meera Company 205.6 216.2 218.0 6.0% 0.8%

Source: Bloomberg Numbers in local currency mn, 1Q 2010 is calendar quarter, excl. Sultan Center and Bahrain Duty Free as 1Q 2010 results are not yet posted Al Meera Company, Al Othaim Markets and The Savola

group posted strong revenue growth in Q1 2010 while

Fitaihi holding suffered top-line depletion. This clearly

exhibits the continued preference for non-discretionary

spending over luxury discretionary spending.

1Villa Moda and Damas International, covered in the initiation report, are excluded in this update due to lack of financial data. Al Meera Company and The Savola Group have been included for the first time.

Chart 6: Net income performance: Q1 2010

Company 1Q 2009 4Q 2009 1Q 2010 YoY growth

QoQ growth

Jarir Marketing 107.5 103.5 118.5 10.3% 14.5%

Fawaz Al Hokair 15.8 NA 27.7 75.4% NA


16.4 16.5 31.7 94.0% 92.8%

Fitaihi Holding 6.4 (2.1) 12.7 99.8% -693.0%

Savola Group 192.6 268.6 394.0 104.6% 46.7%

Al Meera Company 8.4 12.7 9.2 10.1% -27.8%

Source: Bloomberg Numbers in local currency mn, 1Q 2010 is calendar quarter, excl. Sultan Center and Bahrain Duty Free as 1Q 2010 results are not yet posted Higher revenues have largely been reflected in stronger

bottom line performance, suggesting market conditions

remain conducive.

Revenue growth

As forecast in our initiation report, GCC retail companies

reported moderate revenue growth in 2009. The GCC retail

players reported average revenue growth of 6% y-o-y in

2009, compared to 33% y-o-y in 2008 (see chart 7). The

emerging market peers and developed market peers

recorded revenue growth of 16% and 2%, respectively,

during 2009.

Chart 7: Revenue growth (y-o-y): 2009

1%

-8%

9% 7%

-21%

15%

29%

15% 16%

2%

-30%

-20%

-10%

0%

10%

20%

30%GCC Average: 6%

Source: Bloomberg

The Savola Group reported the highest revenue growth of

29% in the region primarily due to the acquisition of Geant

and Giant stores in Saudi Arabia and expansion of its

Panda Store network.


However, Fitaihi Holding and Bahrain Duty Free registered

a revenue decline under the impact of the global economic

slowdown. While Fitaihi Holdings suffered from the decline

in discretionary, luxury goods spending, a 7% y-o-y

(according to WTTC) decline in inflow of international

travellers to Bahrain resulted in a dip in revenues for

Bahrain Duty Free.

A revived and reversed consumer confidence index in 2H

2009 (See chart 8) was reflected in growth momentum

pick-up as posted by the majority of the GCC retail

companies. The Sultan Center, however, witnessed a

deterioration in revenue growth momentum in H1 2009

compared with H2 2009, attributed to full consolidation of

the Lebanese stores revenue in H1 2009, which were

acquired in 3Q 2008.

Operating margin

In terms of operating margin, the GCC retailers on average

performed better than their developed and emerging

market peers. Average operating margin for the GCC

retailers improved by one percentage point during the year

to 10% in 2009 (see chart 9). Emerging market peers and

developed market peers posted average operating margins

of 4% and 9%, respectively, in 2009.

The operating margin improved in 2009 primarily due to a

drop in input costs of the retailers, and with other expenses

such as leases and rentals declining during the year.

Lifestyle store – Bahrain Duty Free — outperformed its

peers and reported significantly higher operating margins

during all quarters of 2009.

Profitability – ROE and ROA

Healthy earnings growth for the GCC retailers translated

into higher returns to shareholders in terms of ROE and

ROA. The GCC retail players recorded average ROA and

ROE of 11% and 20% in 2009, compared with 5% and

10%, respectively, for emerging market peers; and 9% and

17%, respectively, for developed market peers (see chart

10).

Chart 8: Revenue growth (y-o-y): 1H 2009 and 2H 2009

2%

-23%

7% 8%

-24%

24% 27%

3%

17%

4%1%

-2%

16%10%

-18%

8%

32%

7%

15%

1%

-30%

-20%

-10%

0%

10%

20%

30%

40%

H1 2009 H2 2009 Source: Bloomberg Excluding Al Meera Company

Chart 9: Operating margin1, quarterly (%) 2009

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1Q 09 2Q 09 3Q 09 4Q09

Jarir Marketing Fawaz Al Hokair

The Sultan Center Abdullah Al Othaim

Fitaihi Holding Bahrain Duty Free

Savola Group Al Meera Company

Average Developed markets Average GCC Markets Source: Bloomberg 1Some data for the developed market peer group is half yearly.

Chart 10: ROA and ROE (2009)

31%

16% 13%7%

1% 1%6%

13% 11%5%

9%

53%

21%24% 24%

2% 3%

14%

24% 21%

10%17%

0%

20%

40%

60%

ROA ROE

Source: Bloomberg


3.2 Valuation

Valuation based on trailing P/E: The GCC retailers are

trading at a trailing 12-month P/E of 20.5x, compared with

emerging market and developed market peers at 32.1x

and 31.6x, respectively. The Gulf retail companies are

trading at a discount of 36% compared to the emerging

and developed market peers, indicating a relatively

attractive valuation range (see chart 13). The trailing P/E

ratio clearly indicates an expectation of continued revenue

and earnings growth for the industry.

Valuation based on EV/EBITDA: The Gulf retailers are

trading at an EV/EBITDA of 16.4x, compared with 14.9x for

the emerging market and 9.9x for the developed market

peers. Fitaihi Holding is trading at the highest EV/EBITDA

amongst GCC peers, primarily because of a significant

32.5% y-o-y decline in EBITDA in 2009 (see chart 14).

Chart 11: Current P/E

0

20

40

60

80

100

Gulf average: 20.5x

Emerging markets average: 32.1x

Developed markets average: 31.6x

Source: Bloomberg; Excluding outliers

Chart 12: Current EV/EBIDTA

0

10

20

30

40

Gulf average: 16.4x

Emerging markets average: 14.9x

Developed markets average: 9.9x

Source: Bloomberg; Excluding outliers


3.3 Stock liquidity

The liquidity of GCC retail stock varies greatly due to

infrequent trading in some stocks. Overall, liquidity

remained lower than the emerging and developed market

peers as evident from the turnover velocity and free-float

figures.

The average turnover velocity of the Gulf retailers was

83%, less than that of emerging and developed market

peers (see chart 11)

The average reported free float of the GCC retail stocks is

57.7%, higher than emerging market but lower than the

developed market (see chart 12).

Chart 13: Turnover velocity (as on 4 May, 2010)

25% 2%

102%

385%

59%1% 28%

61%116%

136%

0%

100%

200%

300%

400%

500%

GCC Average: 83%

Source: Bloomberg

Chart 14: Free float (%)

Company name Free float (%)

Bahrain Duty Free 79.7%

Fitaihi Holding 78.4%

Savola Group 60.1%

The Sultan Center 55.8%

Jarir Marketing 54.8%

Abdullah Al Othaim Markets Company 45.1%

Fawaz Abdulaziz Al Hokair Company 30.0%

GCC Average 57.7%

Emerging Markets Average 49.7%

Developed Markets Average 68.9%

Source: Bloomberg


Cha

rt 1

5:

Com

para

ble

Ana

lysi

s –

Glo

bal R

etai

l pe

ers

Sou

rce:

Blo

ombe

rg a

nd c

ompa

ny a

nnua

l rep

orts

. All

num

bers

are

for c

alen

dar y

ear 2

009


3.4 GCC retail sector picks

As discussed in our initiation report, the GCC peer group

consists of companies focused on both discretionary

products, such as luxury goods retailer Fitaihi Holding and

Bahrain Duty Free, and those focused primarily on non-

discretionary products, such as food retailers Abdullah Al

Othaim Markets Company, Al Meera Company, Savola

Group and The Sultan Center (See Chart 16).

As envisaged in our initiation report, budget retailers

focusing on non-discretionary products outperformed in

2009, while retailers focused on discretionary luxury goods

faced a challenging environment. Luxury retailers Fitaihi

Holding and Bahrain Duty Free reported a decline in

revenues in 2009, while, food retailers continued to record

robust revenue growth over the same period (See chart

17).

Chart 16: The GCC retailers type

Jarir Marketing

Bahrain Duty Free

Fawaz Al Hokair


Fitaihi Holding

The Sultan Center

Savola Group

Al Meera Company

Non-discretionary

Discretionary

Budget

Luxury

Source: Alpen Capital; size of bubble indicates revenue

Chart 17: Operating margin and revenue growth (2009)

Jarir Marketing

Bahrain Duty Free

Fawaz Al Hokair


Fitaihi Holding

The Sultan Center

Savola Group

Al Meera Company

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

-5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

Reve

nue g

row

th, 2

009 (

%)

Operating Margin, 2009 (%) Source: Bloomberg; size of bubble indicates company’s market cap


The outlook for food and other non-discretionary goods

retailers remains robust, while there are signs that the

luxury goods segment is beginning to recover from the

very weak performance in 2009 (see chart 18).

Chart 18: The GCC retailers: short term outlook

Name Business Segment

Spending Type

Prominent Brands Available

Short Term Outlook

Outlook Rationale

The Sultan Center

Food and Fashion

Discretionary / Non-Discretionary

Fashion: Bedo, Ocean Pacific, Rampage, Jaeger

Abdullah Al Othaim Markets Company

Food Non-Discretionary

Rex, Victo, Haley, Shear, Safoori, Proof

Savola Group

Food, real estate and franchising

Non-Discretionary

Al Meera Company

Food, consumer goods, electrical and electronics

Non-Discretionary

Tide, Lux, Mirinda, Nescafe

Mild food inflation in 2010 across the GCC region and growth in the food-retail segment likely to surpass the non-food segment in the near term.

Jarir Marketing

Books, School & Office Supplies and Gaming

Discretionary HP Laptops, WD External Hard Disks, HTC Mobiles

Experiencing growth in electronics segment. Diversified product offering in profitable school/ office stationery and books segment should provide a positive impetus.

Bahrain Duty Free Shopping Complex

Multi - specialty

Discretionary Valentino, iPod, Sony, JVC, Rolex, Snickers, Nido

Although the company plans to expand in line with the Bahrain International Airport, uncertainty prevails in the global aviation industry following travel disruptions due to the volcanic ash clouds over Europe.

Fawaz Abdulaziz Al Hokair Company

Food, Fashion and Furniture

Discretionary / Non-Discretionary

Food: Swensen’s, The Pizza Company, London Dairy, Cinnabon, Carvel, Seattle’s Best Coffee and Booster Juice Fashion: Zara, Banana Republic, Gap, Aldo Furniture: Kika

Primarily a mid-market fashion retailer. A drop in fashion business may be offset by other businesses such as food. Some fashion brands may do better than others due to lower price points in more affordable range

Fitaihi Holding

Jewellery and Crystals

Discretionary Private Labels: Miss Fitaihi, Fitaihi Junior, Royal Family Foreign Brands: Mont Blanc, Dunhill, Sarcar, Louis Erard, Saint Louis, Rebecca, Derek Rose, Talento, Christian Dior, Breitling

Subdued demand for discretionary luxury products leads us to have a cautious short term outlook. Signs of rebound in gold sales and luxury goods spending not yet reflected in 1Q 2010 performance.

Source: Company Websites and Alpen Capital Above Average Average Below Average

P a g e | 15 GCC Retail Industry

3.5 Corporate governance

In the fast maturing GCC region, corporate governance is

a fundamental aspect of business that has not developed

at the same rate as the economy. GCC companies do,

however, realize the importance of good corporate

governance to help attract international investors as long-

term shareholders.

GCC retailers trail behind their global counterparts

primarily in areas of corporate communications and

disclosure (see comparative analysis chart 19). For

instance, only the last two-three years’ financial statements

are available for the GCC retail companies compared to

four and twelve years for the emerging and developed

market peer groups, respectively. Moreover, Villa Moda

and Damas International, both covered in our initiation

report, have been excluded in the update, as their financial

statements for 2009 were not available. Equity analysis

and credit rating coverage of GCC companies is very low

compared with their emerging market and developed

market peers.

Some other key shortcomings in our sample of participants

are – no pre-announcement of results publication date;

lack of analyst meetings or conference calls; and no

investor relations contact details specified on the website.

Chart 19: Corporate governance

History of publicly available accounts

Reporting frequency

on the website

Pre-announcement of results publication

date

Holding of analyst

meetings/ conference

calls

Availability of investor relations contact details

Equity Analyst

coverage

Rated by

rating agency

Disclosure of

shareholding pattern on website

Independent directors on

the Board

Gulf

Jarir Marketing Fawaz Abdulaziz AlHokair Company The Sultan Center Abdullah Al Othaim Markets Company

Fitaihi Holding

Bahrain Duty Free Savola Group Al Meera Company Average (for Gulf market)

Emerging markets Grupo Pao de Acucar (Brazil) Better Life Commercial Cha-A (China)

CP All PCL (Thailand) Big C Supercenter PCL (Thailand) Pantaloon Retail India Ltd (India) DASHANG Group Co Ltd –A (China) Average (for Emerging market)


History of publicly available accounts

Reporting frequency

on the website

Pre-announcement of results publication

date

Holding of analyst

meetings/ conference

calls

Availability of investor relations contact details

Equity Analyst

coverage

Rated by

rating agency

Disclosure of

shareholding pattern on website

Independent directors on

the Board

Developed markets Wal-Mart Stores Inc (USA) Home Depot Inc (USA) Hennes & Mauritz AB (Sweden) Lvmh Moet Hennessy (France) Tesco Plc (UK) Target Corp (USA) Carrefour SA (France) Staples Inc (USA) Metro AG (Germany) GAP Inc (USA) Sears Holdings Corp (USA) Inditex Group (Spain) Average (for Developed market)

Source: Bloomberg, company websites most attractive more attractive attractive least attractive unfavourable


4 The Global Retail Industry

Emerging market showing higher activity level

Post the economic recession, large emerging markets are

expected to play a far more significant role in the global

economy in coming years, compared to developed

markets. Moreover, many emerging-market retailers are

rapidly becoming world-class competitors in their own right.

The Asia Pacific region and the Middle East and Africa

have experienced higher than world average growth over

the past few years (see chart 20). Some of the companies

in these countries have also begun to foray into the

developed markets.

Chart 20: Growth in retail sales by volume, global (% pa)

Region 2006 2007 2008 2009F 2010F 2011F

North America

2.0 0.6 -4.1 -4.7 0.0 0.8

Western Europe

1.0 0.9 -1.9 -4.0 -0.9 1.1

Eastern Europe

9.5 10.7 9.6 -3.6 2.2 4.6

Asia-Pacific region

4.6 5.0 6.4 0.4 4.2 4.3

Latin America

4.5 5.9 6.5 -5.3 0.4 3.0

Middle East and Africa

4.8 5.0 2.3 -1.1 5.4 5.7

World 3.1 2.8 1.0 -2.9 1.4 2.5

Source: EIU and PWC

Decline in consumer confidence post recession

The global recession has changed the spending behaviour

of consumers, making them more value conscious and

attracted towards private labels. The discretionary

spending also decreased post the recession’s onset.

These changes in consumer behaviour are expected to be

sustained also after a recovery, especially in markets

where consumer spending had previously been excessive

and driven by debt. Such markets include the US, the UK,

Spain and other developed markets.

Retailers are now, more than ever before, required to offer

consumers a favourable value proposition, focus on brand

management as well as an improved customer experience

in order to attract consumers.

Luxury brands affected most by recession

The luxury goods market has been severely affected by

the economic recession. The aspirational luxury market –

catering to households with sufficient incomes and wealth

to purchase luxury items – was impacted by the slowdown

as a severe drop in perceived wealth was noticed. As the

economy recovers, wealth would still be suppressed and

take some time to rebuild – especially housing wealth.

Thus, the tendency of such consumers to purchase luxury

items will likely remain curtailed for some time to come.

However, the high-end luxury market did not suffer as

much.

Luxury retailers are now shifting their focus to the needs of

aspirational shoppers in emerging markets such as India

and China, where the newly affluent are especially brand

conscious and attracted to luxury brands. Such shoppers

may be easier to attract than similarly profiled households

in the developed markets.

Grocery retail – recession proof

Unlike discretionary spending retail segments, the food

and grocery segment fared well in 2009, although many

consumers shifted to lower-priced brands or bought in

bulk.

Private-label retailing gaining prominence

Post the onset of the economic recession; private-label

retailing began gaining grounds in the US and Europe,

where supermarket chains sell products under their own

brand. Wal-Mart and Tesco are examples of such major

retailers that are increasingly focusing on private labels. In

Asia, private-label goods accounted for 10-12% of the

retail market in 2009, with the leading brands having a less

dominant presence in the region.

Online retailing on a rise

The rise of online retail has started eating into some

retailers’ market share. For instance, in the United States,

40% of online retail sales are conducted by the store


retailers themselves with the rest being conducted by pure-

play online retailers, catalogue companies and other

consumer product companies.

Therefore, in order to grow their share, existing retailers

can venture into activities such as using websites for brand

building, online shopping, engaging customers in

conversations as well as obtaining feedback from the

customers to create a multi-channel experience for

consumers. This process is likely to strengthen their own

brand and enable them to compete more effectively with

the non-store retailers that currently have a sizable share

of the online shopping pie. Such services can offer a more

holistic shopping experience to consumers, which results

in improved brand recall and loyalty, and lead to new

channels of growth for the retailers.


5 The GCC Retail Industry

5.1 Overview

The GCC retail market accounts for 1% of the global retail

market. Despite its small size, per capita retail spending in

the GCC is relatively high.

5.2 Sector on a recovery track

The retail sector is showing signs of gearing up in 2010 as

evident from recent survey results. According to a recent

survey by Datamonitor, the percent of respondents cutting

back on non-essential expenses has declined sequentially

since May 2009 in both the United Arab Emirates and

Saudi Arabia. Moreover, number of shopping trips by

individuals has increased during the same period in the

region. Furthermore, consumer confidence in the United

Arab Emirates jumped from 29.6 points in 2H 2009 to 86.1

points for 1H 2010.

Prior to this, in 2009, the GCC retail market was adversely

impacted by the economic downturn albeit less severely

compared with the United States and other developed

markets. However, the industry environment proved to be

better after the particularly severe 2008. The additional

GLA available in 2009 across the GCC was significantly

higher than that in 2008. In terms of key cities, Abu Dhabi

and Dubai recorded the highest GLA addition during 2009

(see chart 21).

Chart 21: GLA additions by year (in sq m)

300,000

800,000

2008 2009

Dubai

0

23,600

2008 2009

Abu Dhabi

150,000 150,000

2008 2009

Riyadh

1000

1,200

2008 2009

Doha

Source: Colliers

This new capacity addition, coupled with weak sales by

many retailers led to a correction in retail space rentals.

The retail rental rates in Dubai dropped for the first time in

a decade in 2009 with an average rental decline of 18%

according to Colliers. There was a sharp dip in

nondiscretionary spending and a decrease in tourist sales

in the UAE during 1H 2009 as fewer tourist visits were

recorded. Rental rates in Abu Dhabi also declined for the

first time in the decade, albeit less severely than in Dubai.

The retail sector in Abu Dhabi is driven by indigenous

factors – domestic rather than tourist or expatriate

spending as in Dubai – which shielded it from the adverse

impact of the global economic recession. However, H2

2009 saw signs of improvement in consumer confidence

with increased retail transaction volumes and a rise in

tourist arrivals in the UAE.

Saudi Arabia was considerably insulated from the global

economic downturn. The retail rentals in Riyadh were

stable in 2009. Qatar, with its highest per capita GDP

translating into high discretionary disposable incomes and

strong purchasing power for residents, showed little effect

of the global economic downturn.


5.3 Market characteristics

Varied market; unique to each GCC country

The retail sector in each GCC country has its own unique

features. The UAE and Saudi Arabia are the largest

markets in terms of total retail expenditure. However, while

the UAE has the highest retail per capita expenditure in the

GCC, Saudi Arabia’s retail per capita expenditure is

amongst the lowest. The large retail market of Saudi

Arabia is attributable to its large population base, while

UAE’s higher retail market size is owing to its higher

tourism and large expatriate population.

Saudi Arabia is also the most conservative Islamic market,

with restrictions on women drivers and on lone men

entering some malls. However, the other aspect of this

conservative society is that the retail sector has profited as

shopping is considered one of the major leisure activities in

the country.

Climate drives prominent mall culture

While rising incomes and expanding populations have

been powerful drivers for the expansion of the retail sector,

social trends specific to the Middle East are also a factor in

its growth. This is a region that is becoming steadily more

affluent, but where the climate, landscape and social

customs combine to limit the range of leisure options

available to the population.

Owing to the hot and arid climatic conditions in the Gulf

countries, people prefer to spend time in air-conditioned

malls. Moreover, shopping is an important leisure activity,

offering an easy environment for families to spend time

together. Visits to malls can also be adjusted to suit every

budget. For many families having modest incomes in Saudi

Arabia, Bahrain or among the Gulf expatriate population,

malls offer a low-cost opportunity for group outings.

Diverse customer base defines Gulf retail

There exists a huge disparity in the income and the wealth

level of GCC inhabitants. The emerging markets, including

the GCC, have fast growing consumer economies.

However, these economies have accumulated petrodollar

reserves to belittle the effects of a global recession on

them.

In the UAE, Emirati nationals comprised about 20% of the

total population in 2009. While expatriates have a monthly

disposable income in excess of US$3,000, their buying

power in the UAE exceeds that of nationals

Designed to serve community purpose

Shopping malls in the GCC countries represent an

updated, shinier, air-conditioned version of the souk – the

traditional market that is a feature of almost any town or

city in the region. These souks traditionally served as

market places, as well as place where major festivals and

cultural and social activities took place. Like the souks,

malls also currently serve as meeting place for Arabs for

cultural and social activities.


5.4 Growth drivers

The GCC retail markets is in a growth phase driven by

rising disposable incomes, favourable demographic profile,

a growing middle class, burgeoning expatriate wealth,

growing tourism and the development of modern retail

infrastructure.

Growing economy and disposable income

The GCC’s GDP growth has outpaced its population

growth consistently over the past several years providing a

significant boost to people’s disposable income in the

region. Also, a higher disposable income translates into

higher consumption expenditure – conducive for retail

sector growth.

The overall income level for residents in the GCC has risen

over the last decade due to a sharp rise in oil prices. The

GCC's combined GDP stood at US$868.5 billion in 2009,

compared with nearly US$342 billion in 2000. The growth

outpaced the region’s rate of population increase leading

to a sequential rise in the region’s GDP per capita (See

chart 22).

Chart 22: GDP per capita for GCC nations (in ’000 US$)

11.6

18.0

26.1

31.8

10

15

20

25

30

35

2000 2005 2010e 2015e

19.531.5

18.0

68.9

14.5

46.9

25.5

46.8

24.5

78.4

22.2

65.4

0

20

40

60

80

100

Bahrain Kuwait Oman Qatar Saudi Arabia

UAE

2009 2015e

Source: IMF

Favourable demographics

The overall demographic trend and changing composition

is set to favour the retail sector in the region. The GCC

population is growing with rising urbanization – both

conducive for retail sector growth (see chart 23). Saudi

Arabia, with a population of 25.5 million, is an attractive

target for the retail industry.

Chart 23: Population growth and economically active population (in millions)

34 35 37 38 39 40 41 42 44 45

14 14 15 15 16 16 17 17 17 18

0

10

20

30

40

50

Population Economically active population

Source: IMF and International Labour Organisation

Moreover, the economically active population in the GCC

countries has been growing at a CAGR of around 4%. In

2009-14, the economically active population is expected to

grow at the same rate as the region’s population – at a

CAGR of about 3%. The UN described 77.7% of the UAE

population in 2005 as economically active; a figure forecast

to rise to 78.8% by 2015. While in Saudi Arabia, over 81%

of the population was economically active in 2005, it is

projected to exceed 82% by 2010 and 83% by 2015. This

augurs well as this section of the population is considered

the most likely to spend freely.

Rise in tourism

With more than 120 nationalities residing in Dubai and an

extensive tourist component being part of the GCC's

economy, the retail industry is poised to benefit from

further growth in tourism. According to the World Travel

and Tourism Council, 60.5 million tourists visited the region

in 2009, generating a tourism demand of about US$242

billion. The number of international visitors is expected to


rise to 78 million per annum by 2014, a growth rate of 5.3%

in 2009-14.

Positioning Dubai as a global leisure and shopping

destination has had a significant impact on the UAE’s retail

industry. Shopping events in Dubai, such as Dubai

Summer Surprises (DSS), the Dubai Shopping Festival

(DSF) and the Dubai Duty-Free (DDF), are major

contributors to the UAE’s retail industry. DDF reported

annual sales of US$1.1 billion for 2009, representing a y-o-

y increase of 3.8%. Similarly, in Saudi Arabia, the retail

sector benefits from the large number of Muslim tourists

performing the annual Hajj and Umrah pilgrimages.

Moreover, the malls in the region are being developed as

landmarks to attract businesses, residents and tourists. For

instance, Emaar Properties’ Dubai Mall is as much of an

attraction to the Downtown Dubai development as the Burj

Khalifa – the world’s tallest tower (comprising hotel,

residential and commercial properties). The mall is the

world’s largest and attracts around 35 million visitors.

Consumer tastes driving big retailers, brands

As disposable income has increased along with exposure

to Western products via travel and satellite TV, shopping in

modern retail outlets has become a recreational activity in

the region and consumers are keen to buy specific brands.

In Kuwait, big retailers claim the largest share of the basic

consumables trade, or 60%.

According to a study by A.T. Kearney on retail investment

attractiveness among 30 emerging markets, Saudi Arabia

ranked fifth in Global Retail Attractiveness in 2009, pre-

ceded by UAE, which ranked fourth.

Duty free shopping

Duty free shopping in the GCC nations is a major driver of

retail sales. Dubai Duty Free accounts for over 9% of total

retail sales in the UAE. This is primarily due to Dubai

International Airport’s strong position as both a transit hub

and a destination in its own right.

Dietetic, health foods segment has scope to grow

As discussed in our Healthcare report, urbanization and

rising per capita income have aggravated the prevalence

of lifestyle ailments such as diabetes and cardiovascular

diseases in the GCC nations. The UAE ranks second

highest in the world for diabetes prevalence (20%),

followed by Saudi Arabia (16.7%), Bahrain (15.2%) and

Kuwait (14.4%), according to the International Diabetes

Federation. Moreover, coronary problems and other

obesity-related diseases are also on a rise in the Gulf

region. Such a higher incidence of lifestyle ailments is set

to boost the advent and growth of healthcare and dietetic

retail in the region.

Although Saudi families spend less on housing and health

care compared to other areas of the world, OTC healthcare

retail sales grew in the country. Socio-demographic

factors, the development of the retailing landscape –

especially hypermarkets and health food shops – and

common health risks such as obesity are forecasted to

continue to bolster growth and demand for OTC healthcare

and wellness/dietetic products.


5.5 Industry trends

GCC consumers becoming brand conscious

As many GCC nationals are educated abroad and are

travel savvy, the demand for foreign goods and services

has also picked up domestically. American and British

brands are in high demand. They have a proven

acceptability here and are considered reliable, consistent

and mature. Similarly, brands from France, Germany, Italy,

Holland, Brazil, Canada and the Far East are also in

demand.

This has attracted retailers from across the globe to Saudi

Arabia, for example. The new entrants include clothing,

footwear and accessories stores; department stores;

furniture and textile companies; grocery operators; luxury

retailers; and others.

The abundance of custom-designed shopping complexes

across the region, along with the proliferation of branded

store networks, has created an acute need for

professionals to stay in touch with the latest trends and

best practices in the industry. According to a Neilson

consumer survey in 2009, the UAE topped global rankings

in believing that designer brands are of significantly higher

quality than standard products (43%). Almost 60% of UAE

consumers believed designer brands projected social

status. This has attracted many luxury brands, restaurants

and hotels to the UAE.

The survey also explores the latent potential for luxury

fashion brands to expand their business in the UAE into

related products such as mobile phones, laptops, MP3

players and even kitchen appliances. In the survey, 57% of

UAE consumers were willing to buy luxury branded mobile

phones (compared to a global average of 34%); 46% to

buy fashion-branded laptops (global average of 29%); and

around 25% to buy luxury fashion-branded MP3 players

and kitchen appliances.

Retailers customize offerings

The frequency of shopping trips acts as a further driver for

trade; therefore, retailers constantly improvise their

offerings and marketing strategies to attract customers. For

instance, European retail groups frequently introduce new

designs. Moreover, as a measure to attract families, many

stores also include children’s play areas, boutiques, music

and photography stores, barbershops and fast-food

restaurants.

Dubai has developed shopping as a major theme of its

appeal as a tourist destination. It has retained its original

wholesale businesses of distributing goods for resale at the

retail level in neighbouring countries, along with

transformation into a high street for international

consumers

Accounting for the inflationary pressure faced by

consumers in the region, supermarkets such as Carrefour

offer value-for-money deals or best prices for basic items.

This is expected to further increase the market share of

major retailers.

Foreign retailers setting shop in GCC

The GCC’s booming retail sector has attracted many

foreign participants into the region. In 2008, a survey by

CB Richard Ellis revealed that 37 new international

retailers entered Saudi Arabia, a number greater than any

country in the world. Kuwait ranked second in the survey

and the UAE registered fourth in position. Dubai’s

recognition as a leading tourism destination has also

attracted foreign brands as around 40% of consumers at

malls and fashion outlets are tourists.

The US clothing company Express established two stores

in the Middle East in Dubai and Riyadh in 2009. Gap plans

to open 44 Gap stores and 10 Banana Republic stores in

Saudi Arabia by 2012. Other luxury brands such as Tom

Ford, Dolce & Gabbana and Viktor & Rolf have also made

their foray into the region. The UK grocery retailer Waitrose

also plans to open outlets in Bahrain, Oman and Abu

Dhabi in 2010.

Organized retail gaining grounds

Retail is the second-largest non-oil sector in the UAE as

well as across the GCC. The region currently has around

six million sq m under development and many more plans

in the pipeline. The region is also experiencing a significant


change in the way people shop. Following their global

footprint, supermarkets are increasingly dominating the

retail landscape. Supermarkets offer convenience and their

well-marketed brands inspire trust in their products.

GCC non-grocery sales beat global averages

The demographic profile of the GCC nations demonstrates

that the most active consumers fall in the mid- to upper-

spending bracket, indicating a high level of discretionary

spending within the region.

In Saudi Arabia, non-grocery retail channels accounted for

almost two-thirds of sales in 2008, compared to a global

average of only one-half. Modern shopping centres provide

entertainment and social opportunities for Saudis since

there are no bars, discos or pubs in the country. In

discretionary spending, non-essential products such as

fashion, consumer electronics, leisure and personal goods

(jewellery, watches and children's products) commanded a

high share.

From ‘Exported to GCC’ to ‘Made in GCC’

Despite their rising affluence, Gulf consumers are

experiencing the strain of inflation, especially in the UAE.

As a measure to check expenses, meals out and shopping

trips are currently considered curtailed activities. This has

created an inclination towards purchase of own-brand

products in supermarkets. A Nielsen survey revealed that

55% of consumers in the UAE bought store’s in house-

branded goods, which were almost 50% cheaper than the

name-brand equivalents. In Saudi Arabia, 29% of the

population bought store-branded goods, according to

Nielsen.


5.6 Challenges

Competition

Considering the potential in the GCC region, many

international retailers have expanded their presence within

the GCC to sustain their business growth. The likes of

Marks & Spencer, Carrefour, Debenhams and Toys R Us,

Groupe Casino and Metro have already established their

footprint in the GCC region. In our view, entry of global

retailers in the region is going to further increase

competition.

• In February 2010, the first international Bloomingdale's

store, part of a venture between Al Tayer Insignia LLC

and Macy's, Inc., was opened in Dubai.

• Galleries Lafayette opened in Dubai Mall in 2009.

• In November 2009, international luxury retailers

Montblanc, Van Cleef and Arpels planned to open more

stores in GCC.

Weak demand for discretionary luxury goods

Although consumer confidence in the GCC region

improved during H2 2009, and there are signs of a pick up

in demand for discretionary luxury goods in Q1 2010, we

are still far from trading conditions seen in 2008.

According to a survey by Datamonitor, the majority of

consumers were cutting back discretionary expenses and

paying off debts in 2009.

Constraint in consumer finance

Marred by the global economic slowdown and Dubai‘s

financial crisis, consumer financing has become restricted

in the GCC region. This is primarily because credit card

defaults have risen significantly in the region post the

financial crisis as thousands of expatriates who lost their

jobs left without settling their bills. In Kuwait, the

government plans to pay KWD 10,000 (US$ 34,555) to

each family in the country to help them reconcile their

debts.

Moreover, the interest rate on credit cards is almost double

for Gulf nationals that of their North America and European

counterparts. For instance, Citibank charges 28-29%

interest per year for credit cards in the region. This is

primarily on account of lack of credit ratings in the Gulf and

high risk of expatriates leaving the country without clearing

their dues.

Socio-cultural differences

Though liberal retailing policies and removal of trade

barriers and restrictions on foreign investors has led to a

retail surge in the region because of Saudi Arabia’s WTO

accession, many reforms are still awaited.

Women are banned from driving in Saudi Arabia, even

though they can legally drive in other Gulf nations. Also,

women are prohibited from walk or being in public places

without a male guardian. There are restrictions on single

men entering some malls in the country. Women are also

discouraged from working, meaning that most shop

assistants are male.

As it is believed that independent, working women are

more inclined to consume, these socio-cultural differences

are expected to affect retail sector growth in the kingdom.

Introduction of taxation in GCC

Value Added Tax (VAT) is expected to be introduced in all

GCC nations by the year 2012. Although the implications

of the introduction of VAT, effectively replacing import duty,

are unclear, many retailers believe that such a low rate

would not significantly impact retail sales. However, its

introduction represents a significant cultural shift for the

federation, ending its status as a 'tax-free' haven at least in

consumption expenditure.


5.7 Way forward

Online retail gaining ground

Pricing issues have led to a growing number of consumers

going online. Currently, e-commerce is a small channel in

the GCC and accounts for less than 1% of retail spending,

and constitutes a major opportunity for the regions

retailers. Online retailing is likely to develop in tandem with

growth in broadband penetration.

Innovation to drive mall growth

Shopping malls in GCC nations have developed from retail

spaces to leisure facilities. Shopping centres in Dubai

house facilities such as indoor ski slopes, rock climbing,

aquariums and even indoor skydiving to project the malls

as leisure destinations.

Moreover, as new mixed-development cities come up in

the region, they offer amenities such as theme parks,

residential complexes, hospitals as well as commercial

spaces under the same roof as the more generic malls.

These innovations are set to govern the future direction of

malls seeking to attract more customers.

Partnership key for foreign companies

Restrictions on foreign ownership have compelled Western

retail brands to enter the GCC market through franchising

and retail partnership with existing local retailers.

Moreover, support from the local partners’ political and

business connections and funding pipeline helps the

foreign collaborators in establishing themselves in the

GCC market. For instance, Géant’s licences are granted to

Fawaz Al Hokair in Saudi Arabia and Fu-Comm/Retail

Arabia in the UAE, Bahrain and Kuwait while Carrefour is

in partnership with MAF.

Thus, new foreign entrants in the GCC region can flourish

and get a foothold in the market by entering into a

franchise or other partnership agreement model with the

pre-established local companies, where local participants

also benefit from the foreigners’ cross-brand expertise and

economies of scale.


Country Profiles


United Arab Emirates

Macro-economic indicators Overview

Indicators Unit 2009 2010E

GDP US$ bn 230.0 252.7

Population mn 5.4 5.5

Inflation % 1.0% 2.2% Private consumption per capita US$ 22,160.0 23,780.0

Overnight visitors* mn 7.9 7.6 Other (non-visitor) Exports**

US$ bn 10.6 13.1

Source: IMF, EIU and World Travel and Tourism Council (WTTC)

Key retailers Company Type

Al-Maya Lal’s Group Furniture and furnishings

Al-Batha Group Electronics store

Damas International Jewellery

EMKE Group Hypermarket, supermarket and other malls

Al Safeer group Lifestyle

Jashanmal & Partners Ltd Departmental stores and international franchises

Majid Al Futtaim Group Supermarket - in association with Carrefour

Sharaf DG Consumer electronics and IT products

UAE is the largest retail market in the GCC region, with the highest per capita retail spending, attributed to its higher tourism and expatriate population spend. Dubai, Abu Dhabi and Sharjah are the prime retail markets in the country with significant presence of modern retail outlets.

A unique feature of the UAE retail industry is innovation of malls. Retailers promote malls as leisure destinations to increase footfall. Shopping centres in Dubai have facilities such as indoor ski slopes, rock climbing, aquariums and indoor skydiving.

Promotion of Dubai as a global leisure and shopping destination has positively impacted UAE’s retail space. Shopping events in Dubai such as Dubai Summer Surprises (DSS), the Dubai Shopping Festival (DSF) and Dubai Duty-Free (DDF) are major contributors to the UAE’s retail industry.

Along with dominant local retailers such as EMKE Group, MAF Group and Damas International, international stores such as Carrefour, IKEA, Debenhams, Harvey Nichols and Bloomingdales, and luxury stores like Cartier, Hermès, Rolex, Louis Vitton and Tiffany’s have also enhanced footfall in the region’s retail market.

Key retail project pipeline*** Incremental GLA (in sq m)

Project GLA (in sq m) Completion Mall of Arabia (Phase 1) 372,000 2012

Yas Mall - Yas Island 296,000 2012

Danet Mall 185,000 2011

Mirdif City Centre 180,000 2010

Arena Mall in Dubai Sports City 140,000 2010

1,362,659

937,172

495,540

1,039,612

0

400,000

800,000

1,200,000

1,600,000

2009 2010E 2011E 2012E


Retail sector is undergoing significant development in the UAE. Alpen Capital expects GLA of approx 2.25 mn sq m to be added in 2010-12, around 35% of which in Abu Dhabi and just over 50% in Dubai.

In 2009, average occupancy levels in Dubai malls were one of the highest in the GCC, and these are expected to continue to remain high. In Abu Dhabi, the retail market is undersupplied and, like Dubai, shopping malls enjoy high occupancy rates.

The global economic slowdown has had a mixed impact on the UAE retail market. While Dubai suffered a mild


slowdown, the Abu Dhabi retail market – driven by domestic spending rather than tourist or expatriate spending – was not as affected by the slowdown.

In Abu Dhabi, retail spending per sq m may decline in 2010 under the impact of significant increase in retail space. In our analysis, the Dubai retail market does not appear to be oversupplied, despite heavy addition in retail space. The

short-term imbalance is expected to be mitigated once the current employment problem faced by expatriates reduces and tourism regains its earlier tempo.

* Only includes those international visitors who stay at least one night (i.e. same-day and cruise passengers are excluded). ** Includes consumer goods (such as clothing, electronics or petrol/fuel) exported for ultimate sale to visitors, or capital goods (such as cars, aircraft or cruise ships) exported for use by Travel & Tourism providers abroad. *** The table does not constitute an exhaustive list of the project pipeline.


Kingdom of Saudi Arabia



GDP US$ bn 369.7 438.0 Population mn 25.4 26.0 Inflation % 5.1% 5.2% Private consumption per capita US$ 5,150.0 5,380.0


US$ bn 17.6 22.2



Fawaz al-Hokair Group Apparel Jarir Marketing Co Bookstore


Retail sale centres and supermarkets

Fitaihi Holding Jewellery

Al-Sawani Group Lifestyle

Savola Group Grocery/ Hypermarket/ Supermarket

The Saudi Arabian retail sector is one of the largest in the GCC region, albeit with low per capita retail spending. The sector growth in the country is attributed to its large youthful population and large number of tourists visiting the country for Hajj and Umrah pilgrimages every year. The changing position of women in Saudi Arabian society will help the retail sector to grow further.

The Saudi retail market is highly fragmented and dominated by single-outlet operations – independent grocers, food specialists and leisure and personal goods retailers. However, as the industry is maturing, various participants are undergoing consolidation and many chain outlets have emerged. Al-Azizia Panda of the Savola Group consolidated its lead in the market by acquiring operations of Giant Stores and Géant during 2008-09.

During the last few years, Saudi Arabia has attracted various new retailers from across the globe – indicating growing brand consciousness among the Saudi consumers. International companies such as Carrefour, Debenhams and IKEA have entered the market through regional or local franchisers.


Project GLA (in sq m) Completion Al Qasr Mall 244,809 2010

Dammam Central Mall 120,000 2010

Dammam Corniche Mall 120,000 2011

Central Park Mall 92,440 2010

Dareen Mall 82,600 2010

400,630

711,839

159,000

645,000

0

200,000

400,000

600,000

800,000

2009 2010E 2011E 2012E

Source: Alpen Capital, Colliers

The Saudi Arabia retail pipeline is set to see significant GLA addition. An addition of over 1.5 mn sq m GLA is expected in 2010-12. However, in the capital city Riyadh, GLA growth was minimal in 2009 compared with trends seen in the past few years. As new malls come up, they will forcing older malls to reposition and revamp to maintain footfall.

Although the overall occupancy rates remained high in Saudi Arabia in 2009, new malls had comparatively higher occupancy rates than older ones. This was primarily because some major retailers terminated their agreements on the completion of new malls.

The Saudi retail sector was undeterred by the economic slowdown and rentals in the capital city remained almost stable in 2009.

* Only includes those international visitors who stay at least one night (that is, same-day and cruise passengers are excluded). ** Includes consumer goods (such as clothing, electronics or petrol/fuel) exported for ultimate sale to visitors, or capital goods (such as cars, aircraft or cruise ships) exported for use by Travel & Tourism providers abroad. *** The table does not constitute an exhaustive list of the project pipeline.


Qatar Macro-economic indicators Overview


GDP US$ bn 83.9 110.8 Population mn 1.6 1.7 Inflation % -4.9% 1.0% Private consumption per capita US$ 12,370.0 12,950.0


US$ bn 2.2 3.0


Key retailers

Company Type

Al Meera Consumer Goods Company

Supermarkets

Darwish Holding Luxury, lifestyle, consumer electronics and department stores

Qatar Duty Free Lifestyle Family Food Centre Supermarkets and food retailer

Qatar’s retail sector has historically been an undersupplied market, with one of the highest retail densities in the GCC region. The retail sector in the region is buoyed primarily by high GDP per capita and growing population.

The country plans to attract 1.4 million tourists p.a. by 2011, which is expected to further boost its growing retail sector. The country’s retail landscape was undeterred by the economic slowdown, with various supermarkets and hypermarkets being introduced in 2009-10.

Luxury retailers, such as Darwish Holdings and Qatar Duty Free are expected to experience a rise in the region, fuelled by Qatar’s high GDP per capita. Al Meera Company is one of the prominent food retailers in the region, listed on Qatar Stock Exchange in 2009.


Project GLA (in sq m) Completion Marqab Mall 205,000 2010

The Pearl 188,000 2011

Al Wakrah Mall 69,000 2011

Al Waab Mall 39,484 2012

Safari Mall 20,439 2010

283,000 239,439 257,000

148,484

0

50,000

100,000

150,000

200,000

250,000

300,000

2009 2010E 2011E 2012E


Significant addition in GLA is expected over the next three years, thereby nearly doubling the current supply of rental space in Qatar’s capital city Doha.

Qatar has a high occupancy rate compared with other GCC countries due to an existing demand/supply mismatch. Any new complex faces high absorption rate due to ready-made demand existing for retail space – for instance, the Villagio Mall received a high absorption rate.

Retail rental in Doha is amongst the highest in the Gulf region. Doha City Centre commands the highest rental primarily because of its popularity. However, the current robust project pipeline – once completed – will bring some correction in demand/supply mismatch, thereby moderating the rental rates during the coming years. Moreover, as the majority of construction is in premium category malls, a drop in rentals could be more accentuated in this segment.

* Only includes those international visitors who stay at least one night (that is, same-day and cruise passengers are excluded). ** Includes consumer goods (such as clothing, electronics or petrol/fuel) exported for ultimate sale to visitors or capital goods (such as cars, aircraft or cruise ships) exported for use by Travel & Tourism providers abroad. *** The table does not constitute an exhaustive list of the project pipeline.


Bahrain





US$ bn 0.1 0.2



Géant Hypermarket - Fu-Com International/ Casino Groupe

Hypermarket/ grocery retailer

Al Jazira Group Grocery retailer Jawad Business Group Grocery retailer Bahrain Duty Free Lifestyle Landmark group Lifestyle

HyperCorp Hypermarket/ Supermarket

The Bahrain retail market is significantly less developed than Saudi Arabia and UAE, with convenience stores comprising a large section of the sector. Moreover, traditional markets (souks) dominate the market for traditional goods and services – such as gold, fabric and sweets.

However, Bahrain’s retail market is set to benefit from a favourable long-term economic outlook, growing western styles of retailing and a steady rise in disposable income. Growing tourism and annual events such as the Formula One motor race also generate significant demand for retail. Moreover, tourism from the strict Saudi regime to liberal Bahrain for shopping and outings is also a driver to retail sector growth in the country.

As the retail sector is developing in Bahrain, many international retailers such as H&M, Debenhams, Zara and Mango have marked their advent in the country.

Key retail project pipeline*** Incremental GLA (in sq m) Project GLA (in sq m) Completion Raffles City 70,000 2012

Al Areen project - Downtown 40,670 2011

Muharraq Shopping Mall 31,000 2010

Villamar @ the Harbour 9,900 2010

Shopping Mall - Hidd NA 2011

89,581

40,900 40,670

70,000

0

20,000

40,000

60,000

80,000

1,00,000

2009 2010E 2011E 2012E


The Bahrain retail sector experienced significant GLA growth in 2008 with the opening of Bahrain City Centre, Moda Mall, Country Mall and extension of the Seef Mall.

Considering that one-stop shopping is popular with the Bahrainis, opening of the Bahrain City Centre has buoyed the retail sector in the region – as it is the largest shopping centre in the country and home to various brands under a single roof.



Kuwait Macro-economic indicators Overview




US$ bn 3.7 4.5



Union of Co-operative Societies

Grocery stores/ Convenience stores/ Supermarkets/ Hypermarket

The Sultan Center Supermarket City Centre Supermarket M.H. Alshaya Company Lifestyle and restaurants Trafalgar Luxury

Villa Moda Life Style Fashion/ Apparel

Alghanim Industries Electronics retailer

Kuwait’s retail sector is primarily driven by its high expatriate population along with foreign workers crossing the border from Iraq. The country has a significant share of non-organized retail stores, including fresh produce shops, bakeries, poultry and seafood shops.

Grocery retail of Kuwait is dominated by the government-funded Union of Consumer Co-operative Societies (UCCS) stores, while private retail participants are restricted to commercial zones. Moreover, the country has over 2,000 privately run smaller grocery stores.

As the retail sector is maturing in Kuwait, presence of shopping malls is increasing and larger shopping malls are coming up. Envisaging latent potential in the Kuwaiti retail sector, 29 new international retailers entered the market during 2008.


Project GLA (in sq m) Completion Avenue Shopping Mall 86,000 2012

Al Hamra 37,000 2010

232,000

37,000

86,000

0

50,000

100,000

150,000

200,000

250,000

2009 2010E 2011E 2012E


New GLA of 123,000 sq m is set to be introduced in 2010-12 in the Kuwaiti retail sector – third highest in the GCC region. However, the demand in the region is expected to exceed the retail project pipeline.

Undersupply in the country has also led to high retail rentals in shopping malls, pushing the up rentals even in older malls.



Oman





US$ bn 2.6 3.1



Assrain Group Furniture and furnishing Jawad Sultan Electronics/ telecom Khimji Ramdas LLC Lifestyle MHD Automotives and other home and

office appliances Mustafa Sultan Electronics

Salman Stores Kitchen appliances

WJ Towell Group Home furnishing

Oman retail sector is noticeably smaller and underdeveloped when compared with the markets of Saudi Arabia and UAE. As household income has increased over the past few years, consumer spending of Omanis has been on the rise, thereby generating demand for more retailers to enter the country.

In addition to the opening of new malls, retailers are also focusing on improving consumers’ shopping experience to increase footfall. For instance, when Carrefour entered Oman, the Sultan Center introduced a loyalty program for its customers and renovated its retail space to stay competitive.

Besides local retailers such as Jawad Sultan, WJ Towell Group, international retailers such as Zara, Gap, Banana Republic, Forever 21 and Borders have marked their presence in the country.


Project GLA (in sq m) Completion Muscat Grand Mall complex 220,000 2011

Lulu Mall - Salalah 30,000 2010

Sohar City Centre NA 2011

32,516 30,000

220,000

0

50,000

100,000

150,000

200,000

250,000

2009 2010E 2011E 2012E


Owing to growing demand, Oman’s retail space saw significant capacity addition in the past. For instance, in 2007, the Muscat City Centre completed its RO22.5mn expansion project, which more than doubled its GLA. Going forward, we expect 250,000 sq m GLA to be added during 2010-12.



Company Profiles


Jarir Marketing Publicly Listed Company Brief Stock Data* Stock Chart*

Bloomberg Ticker JARIR AB

Price (SAR) 158.8

52 Week High/Low 162.3/125.3

Enterprise value (SAR mn) 6,409.6

Market cap (SAR mn) 6,350.0

Established in 1979, Saudi Arabia-based Jarir Marketing Company is a wholesaler and retailer of office products, school supplies, children’s toys, books, computers and computer accessories. It is also involved in the purchase and acquisition of residential and commercial buildings and land, along with computer maintenance.

6 month average daily value traded (SAR mn) 5.0

80

90

100

110

120

130

140

Jarir Marketing Tadawul Index

Source: Company website and Bloomberg * as on 4 May, 2010

Performance Summary Business description

Operating performance

(US$ mn) 2008 2009 %

change

Revenue 671.8 681.3 1.4%

COGS 82.7 81.0 -2.1%

Operating margin 13.9% 15.0% 1.2pp

Net income 88.7 99.7 12.4%

Net income margin 13.2% 14.6% 1.4pp

ROE 0.5% 0.5% 0.0pp

ROA 0.3% 0.3% 0.0pp

Valuation Multiples

Current 2010E 2011E

P/E 17.0x 15.1x 13.8x

Dividend Yield 4.9 5.2 5.7

EV/EBITDA 15.9x 14.1x 12.6x

As at December 31, 2009, Jarir Marketing had 27 showrooms in the Kingdom of Saudi Arabia and the GCC, in addition to investments in properties in Egypt.

The company operates under the Jarir Bookstore, Roco and Royal Falcon brands.

It operates over a retail area of 580,000 sq ft (53,884 sq m)

In 2009, the company derived about 88% of its revenues from stationary retail and remaining from wholesale.

Geographical revenue distribution in 2009 was around 88% revenues from Saudi Arabia and remaining 12% from GCC and Egypt.

Stationery Retail88.3%

Stationery Wholesalers

11.7%

Revenue Mix: 2009

Saudi Arabia88.3%

GCC and Egypt11.7%

Geographical Distribution: 2009

Shareholding structure Recent developments and future plans Jarir

Company for Commercial Investments

12.0%

Mohammed Abdulrahman

Nasser Al Aqil9.0%

Abdulkarim Abdulrahman

Nasser Al Aqil9.0%

Nasser Abdulrahman

Nasser Al Aqil

9.0%

Abdullah Abdulrahman

Nasser Al Aqil9.0%

Abdulsalam Abdulrahman

Nasser Al Aqil

9.0%

Public43.0%

In February 2010, Jarir Marketing announced its plans to open four new stores in Saudi Arabia and Kuwait during 2010 and boost net profit by 15% for the year 2010.

Source: Company website and Zawya


Fawaz Abdulaziz Al Hokair Company

Publicly Listed Company Brief Stock Data* Stock Chart*

Bloomberg Ticker ALHOKAIR

AB

Price (SAR) 42.6

52 Week High/Low 44.7/25.0



Established in 1990, Saudi Arabia-based Fawaz Abdulaziz Al Hokair Company is engaged in retail and wholesale of fashion and related businesses, including apparels and shoes. It commands 50% market share in the country. The company is also engaged in the real estate, financial services, fitness and leisure and healthcare sectors.


70

90

110

130

150

170

Fawaz Abdulaziz Al Hokair Company Tadawul Index




(US$ mn) 2008 2009 %change

Revenue 422.7 506.2 19.8%

COGS 57.4 58.5 2.0%

Operating margin 13.1% 8.8% -4.3pp

Net income margin 12.7% 10.7% -2.1pp

ROE 0.2% 0.2% 0.0pp

ROA 0.2% 0.1% 0.04pp

Valuation Multiples

Current 2010E 2011E

P/E 13.6x 12.1x 11.4x



The group holds 5 million sq ft of retail real estate, comprising 11 malls, 900 outlets (incl the addition of the acquired Wahba chain) representing 70 international retail brands and 152 food outlets, representing 15 international food brands. Some of the brands include La Senza, Cameo, Nine West, Wallis, Harvey & Jennifer, Maternity etc.

The company runs retail stores on a franchise basis throughout the country.

Women's wear39%

Departmental store35%

Children's wear10%

Shoes11%

Men's wear3%

Export2%

Revenue Mix: 2008

Shareholding structure Recent developments and future plans

Dr Salman Abdulaziz

Fahed Alhokair33.4%

Fawaz Abdulaziz

Fahed Alhokair33.4%

Dr Abdulmajeed

Abdulaziz Fahed

Alhokair33.2%

In March 2010, FIFA worldwide Master Licensee Global Brands Group (GBG) signed a four-year deal with Fawaz Alhokair and Company (JSC) to operate 14 official FIFA stores in the Middle East and North Africa.

In March 2010, the firm announced its plans to open 112 new stores during the year, about half of which will be in other MENA region countries and emerging markets such as Kazakhstan and Azerbaijan.

In November 2009, Saudi Arabia's Capital Market Authority fined the firm SAR 100,000 (US$ 26,667) for violating the bourse rules by delaying the disclosure of two memorandums of understanding with Arabian Centres Limited.





Bloomberg Ticker AOTHAIM AB

Price (SAR) 72.5




Founded in 1956, with headquarters in Riyadh, Saudi Arabia, Abdullah Al-Othaim Markets Company engages in wholesale and retail trading of food supplies, fish, meat, cars and crops in the Middle East. It also manages and operates supermarkets and shopping centres as well as offering catering services. 6 month average daily value

traded (SAR mn) 12.9

0

50

100

150

200

Abdullah Al Othaim Markets Company Tadawul Index




(US$ mn) 2008 2009 %change

Revenue 761.2 817.3 7.4%

COGS 95.7 95.3 -0.3%



ROE NA 0.2% NA

ROA NA 0.1% NA

Valuation Multiples

Current 2010E 2011E

P/E 21.0x 16.2x 14.2x



The firm, which owns hypermarkets, supermarkets and convenience stores, is Saudi Arabia’s second-biggest retail chain by sales following Panda Azizia, affiliated to Savola Group, and also competes with France’s Carrefour.

The company has 124,000 sq m retail area with 82 retail outlets and 5 warehouses in Saudi Arabia.

Supermarket55%

Wholesales Stores23%

Hypermarkets13%

Convenience stores

9%

Revenue Mix: 2008


Al Othaim Holding

Company49.0%

Abdullah Salih Al Othaim6.0%

Fahed Abdullah Al Othaim

5.0%

Hoda Abdullah Al Othaim

5.0%

Abeer Abdullah Al Othaim

5.0%

Public30.0%

In June 2009, the firm announced its plans of expansion abroad, with Egypt as its first target and 20 outlets by the end of 2010.



Fitaihi Holding


Bloomberg Ticker AHFCO AB

Price (SAR) 14.8


Enterprise value (SAR mn) 770.9

Market cap (SAR mn) 740.0

Established in 1992, the company manufactures gold, silver and other jewellery and trades in other related accessories and household goods. The Group also provides its services for exhibitions. It is also engaged in the establishment and management of health centres and medical rehabilitation centres along with trading in medical equipment and accessories.


80100120140160180

Fitaihi Holding Tadawul Index




(US$ mn) 2008 2009 %

change

Revenue 51.8 40.9 -21.1%

COGS 57.1 54.9 -3.9%

Operating income 6.4 3.7 -43.1%


Net income 5.1 2.8 -44.6%

Net income margin 9.9% 6.9% -2.9pp

ROE 0.03% 0.02% -0.01pp

ROA 0.03% 0.01% -0.01pp

Valuation Multiples

Current 2010E 2011E

P/E 43.6x NA NA

Dividend Yield NA NA NA

EV/EBITDA 33.5x NA NA

It is the pioneer and only public shareholding company operating in jewellery and luxury retail in Saudi Arabia.

The Group mainly operates in Saudi Arabia, with eight showrooms in the country.

It operates under various brands, namely Mont Blanc, Dunhill, Sarcar, Louis Erard, Saint Louis, Scintilla Monaco, Marina B, Talento, Rebecca, Robbe & Berking, Moser, Guy DeGrenne, Aynsley, Noritake, Nachtmann, Fratelli Rosetti, Derek Rose, Fabio Inghirami, Lanvin, Zimmerli, Breitling, Maurice Lacroix and Christian Dior.


Ahmed Hassan Ahmed Fitaihi20.5%

Public79.5%

In August 2008, Fitaihi Holding bought 5% stake of Oriental Weavers, a Cairo-based manufacturer of carpets and rugs, for EGP 153 million (USD 28 mn).

In May 2008, the company started two new companies in Saudi Arabia – a financial investment firm and a real-estate investment company, with a capital of SAR100 million (US$26.7 mn) each.



Bahrain Duty Free


Bloomberg Ticker DUTYF BI

Price (BHD) 0.8


Enterprise value (BHD mn) 35.7

Market cap (BHD mn) 53.0

Established in 1991, the company operates a chain of duty free shops in both the Bahrain airport and seaport.

6 month average daily value traded (BHD mn) 0.004

60

80

100

120

DUTYF BI Equity BHSEASI Index




(US$ mn) 2008 2009 %change

Revenue 87.7 80.9 -7.8%

COGS 61.3 60.1 -2.0%



Net income 16.0 16.3 1.7%


ROE 0.23% 0.21% -0.02pp

ROA 0.17% 0.16% -0.01pp

Valuation Multiples

Current 2010E 2011E

P/E 8.6x NA NA



Alongside retail, the Group also markets its duty free goods on board Gulf Air flights, offers duty free allowance and exchange rate services as well as advertising services.

It offers products such as confectioneries, liquor, tobacco, fashion jewellery, watches, cosmetics and electronics. The Group also offers training on in-flight services.

The Group, managed by Aer Ritana International Middle East, operates mainly in the Kingdom of Bahrain.

Shareholding structure Recent developments and future plans Esterad

Investment Company

10.0%

Global Express

8.1%

National Investment Company

7.0%

Farouk Youssef Al Moayyed

5.0%

Public69.9%

In February 2010, Bahrain Duty Free opened the Arsenal’s flagship corner for its customers Arsenal and football fans, providing a wide variety of Arsenal Club products.

In April 2009, Bahrain Duty Free introduced online shopping for its customers, the first of its kind service in the Middle East.



The Sultan Center Publicly Listed Company Brief Stock Data* Stock Chart*

Bloomberg Ticker SULTAN KK

Price (KWd) 196.0

52 Week High/Low 300.0/172.0

Enterprise value (KWD mn) 248.8

Market cap (KWD mn) 113.5

Found in 1976, the Kuwait-based Sultan Center operates a chain of retail supermarkets and restaurants. It supplies supermarket items, perishables and general merchandise to retail markets, along with in-house dining and catering options.

6 month average daily value traded ( KWD mn) 106.5

020406080

100120140160

The Sultan Center Kuwait SE Price Index




(US$ mn) 2008 2009 %

change

Revenue 789.3 984.7 24.8%

COGS 80.0 80.8 1.0%



Net income 59.4 -20.2 -133.9%

Net income margin 7.5% -2.0% -9.6pp

ROE 13.12% -4.6% -17.7pp

ROA 6.03% -1.7% -7.7pp

Valuation Multiples

Current 2010E 2011E

P/E 29.9x NA NA



The Sultan Center operates 11 major retail outlets in Kuwait in addition to other services and has an approximately 15% share of the retail market in Kuwait. Its stores are in 100 locations across six countries.

The company holds 53 brand outlets including Café Sultan, Jeans Grill, Style for Less and others; representing 40 international franchises in the Middle East.

The company also provides real estate services, security equipment and services, investment in real estate and trading securities and telecommunications services.

In 2008, the company derived 70% of its revenue from Kuwait, followed by Jordan, Oman, Lebanon, Dubai and Bahrain.

Department Stores96%

Construction contract revenue

3%

Service contract revenue

1%

Revenue Mix: 2008


Khaled Sultan Al Essa9.9%

Abdullah Sultan Al

Essa9.4%

Faisal Sultan Al Essa9.1%

Jamil Sultan Al Essa8.8%

Anwar Sultan Al Essa6.9%

Public55.9%

In February 2010, The Sultan Center opened a new store in Jabriya, bringing its total retail business store count to 26.



Savola Group


Bloomberg Ticker Savola AB

Price (SAR) 36.0




The Savola Group, established in 1979, is one of Saudi Arabia's leading industrial companies. It operates in businesses including edible oils, sugar, noodles/pasta and packaging, along with real estate and franchising. The Group also has presence in the MENA region and Central Asian countries. 6 month average daily

value traded ( SAR mn) 17.3

60

80

100

120

140

160

180

Savola Group Tadawul All Share Index




(US$ mn) 2008 2009 %

change

Revenue 3684.6 4768.5 29.4%

COGS 86.9 82.7 -4.8%

Operating margin -1.6% 4.0% 5.6pp


ROE 3.0% 14.3% 11.3pp

ROA 1.6% 6.0% 4.5pp

Valuation Multiples

Current 2010E 2011E

P/E 18.9x 16.8x 14.8x



The Savola Group operates through four sectors – Foods Sector, Retail Sector, Real Estate Sector and Franchising Unit. The foods sector includes edible oils, foods and sugar, while the retail sector includes Panda and Hyper Panda, Kinan International and the Savola Plastics Sector. The franchising unit has exclusive rights in Saudi Arabia for 10 international brands of fashion wear.

The Group also has major investment in Al Marai Dairy Company (28%), Herfy Foods Company (70%) and Jordanian Tameer Company (5%).

Edible Oils31%

Sugar20%

Retail44%

Plastics4%

Real Estate and

Franchising 1%

Revenue Mix: 2009


Mohammed I. Al Issa12.0%

Kingdom Holding Co.

10.2%

Abdullah M. A. Al Rabiah

8.8%General Organization

for Social Insurance

5.3%

Public63.8%

In the food sector, the firm plans to focus on business-to-business opportunities in 2010. It also plans to acquire Pakistan’s large oil market to build up its capacity. Pasta production is also scheduled to begin in factories of Afia International Company in Egypt by early 2011.

In 2010, the retail sector is expected to sell 7% equity of Azizia Panda United Co. (Panda) to Géant Saudi Arabia, a subsidiary of Fawaz Al Hokair Group, reducing Savola’s shareholding to 74.4% and Al-Muhaideb’s holding to 18.6%.

The plastics sector plans to increase sales by at least 30% in 2010.



Al Meera Consumer Goods Company


Bloomberg Ticker MERS QD

Price (QAR) 59.9


Enterprise value (QAR mn) 412.4

Market cap (QAR mn) 470.4

Established in 2005, Qatar-based Al Meera Consumer Goods Company, (ALMEERA) is in the business of wholesale and retail trading of several types of consumer goods.

6 month average daily value traded ( QAR mn) 2.9

0

50

100

150

200

250

300

Al Meera Company Qatar SE Price Index




(US$ mn) 2008 2009 % change

Revenue 158.6 205.7 29.7%

COGS 95.0 95.1 0.1%



ROE 9.8% 17.5% 78.8pp

ROA 6.2% 8.5% 2.3pp

Valuation Multiples

Current 2010E 2011E

P/E 11.1x NA NA



Al Meera Company owns and manages outlets, trading in foodstuff and other commodities, as well as electrical and electronic equipment.

Its supermarkets provide clothes, consumer electronics, detergents, personal care products, general food and non-alcoholic beverage products.


Government26.0%

Public64.0%

In April 2010, Al Meera Company announced its plans to invest around QAR 1.7 billion (US$ 459 million) on construction, reconstruction and renovation of its various branches during the next three years.

Al Meera Consumer Goods Company was listed on Qatar Exchange on October 28, 2009.

In January 2009, the government issued directives for merger of Al Meera with Mawashi (Qatar Company for Meat & Livestock Trading).



Appendix: Major retailers in the GCC region (2009)

Region Retailers Public/ Private Retailer type Géant Hypermarket - Fu-Com International/ Casino Groupe

Private Hypermarket/ grocery retailer

Al Jazira Group Private Grocery retailer Jawad Business Group Private Grocery retailer

Bahrain Duty Free Public Airport duty free shopping complex Landmark group Private Lifestyle

Bahrain

HyperCorp Private Hypermarket and supermarket Union of Co-operative Societies Private Grocery stores/ supermarkets/ convenience stores/

hypermarket The Sultan Center Public Supermarket City Centre Private Supermarket M.H. Alshaya Company Private Clothing and accessories, footwear, health and

beauty products and restaurants Trafalgar Private Luxury retailer Villa Moda Life Style Public Fashion/ apparel

Kuwait

Alghanim Industries Private Electronics retailer Assrain Group Private Furniture, food products, telecommunications, body

shop, textiles and clothing Jawad Sultan Private Electronics and telecom applications Khimji Ramdas LLC Private Lifestyle and general store MHD Private Automotive, office and home appliances Mustafa Sultan Private Electronic appliances, home appliances, furniture,

mobile phone, security systems OHI Private Electronics and telecom applications Salman Stores Private Kitchenware, hotelware, ovenware and other lifestyle

goods WJ Towell Group Private Furniture, furnishing and other consumer products

Oman

Muscat Duty Free Private Airport duty free shopping complex Al Meera Consumer Goods Company Listed Supermarkets and consumer goods Darwish Holding Private Retail of jewellery, cosmetics and consumer

electronics and department stores Qatar Duty Free Government Airport duty free shopping complex Abu Issa Holding Private Department stores, construction and IT equipments Salam Studio and Stores Parent company listed Department stores Mannai Trading Listed Home appliances and electronics, automotive,

computer and office systems etc Family Food Centre Private Supermarkets, distribution of food and non-food

items, catering and bakeries

Qatar

Almana & Partners Private Consumer electronics, office and household appliances

Fawaz al-Hokair Group Public Apparel Jarir Marketing Co Public Bookstore Saudi Company For Hardware Private Hardware Al-Bandar Trading Private Fashion Abdullah Al Othaim Markets Company Public Retail sale centres and supermarkets Fitaihi Holding Public Jewellery Al-Sawani Group Private Fashion, lifestyle, sportswear, home ware and beauty

products

Saudi Arabia

Savola Group Public Grocery/ hypermarket/ supermarket


Region Retailers Public/ Private Retailer type Al-Maya Lal’s Group Private Furniture and furnishings Al Batha Group Private Electronics store Damas International Public Jewellery EMKE Group Private Hypermarket, supermarket and other malls Al Safeer group Private Lifestyle Jashanmal & Partners Ltd Private Departmental stores and international franchises Majid Al Futtaim Group Private Supermarket - in association with Carrefour Sharaf DG Private Consumer electronics and IT products Just Kidding Private Luxury baby products Axiom Telecom Private Telecom Dubai Duty Free Private Airport duty free shopping complex ADCS Private Supermarkets/ hypermarkets/ electronics and

furniture retail outlets/ shopping malls Rivoli Private Lifestyle and luxury retailer KM Trading Private Food, clothing, consumer electronics and home

appliances Grand Stores Private Department stores

UAE

Abu Dhabi Duty Free Private Airport duty free shopping complex


Industry Research Services at Alpen Capital

Alpen Capital’s Industry Research function was launched in 2009 to complement our existing corporate advisory services.

Alpen Capital’s industry research analysts keep a close eye on the latest developments in the markets, carry out special studies and

offer a range of key economic and financial forecasts on selected industries relevant to GCC economies.

Some of the recent industry research reports that Alpen Capital has published are:

• GCC Cement Industry report

• GCC Retail Industry report

• UAE Insurance Industry report

• GCC Healthcare Industry report

• GCC Takaful Industry Report

• Gulf Petrochemical Industry Report

gcc retail industry report 2010

Documents